“It’s the Nature of the Beast” Craft Beer Pros Weigh In On Allocation

It’s easy to forget amidst the fun and frivolity that brewing is a business and craft beer is a commodity. The laws of supply and demand apply to your happy hour pints as surely as they do to your cookout cases. This is especially true for beers in limited supply. There are many releases out there that consumers are clamoring for but can’t get as readily as they’d like.

How then do these beers get into the hands of consumers? Some breweries get around this by only allowing their very rare beers, “whales” in the craft beer lexicon, to be obtained directly from the brewery (e.g., Three Floyd’s Dark Lord, Cigar City Hunaphu Stout, and of course, the original brewery-only release, Westvleteren XII).

The aforementioned beers are produced in such limited volumes each year that their sale solely at breweries is feasible. For annual releases produced in greater volumes, however, this won’t work. Such beers abound. A list of examples reads like a who’s who of craft beer geek standbys: Bell’s Hopslam, Founders Kentucky Breakfast Stout, Boulevard Saison-Brett, Russian River Pliny the Younger, Troegs Nugget Nectar, and Stone’s annual edition of the Vertical Epic. Beers like these, highly in-demand and produced in large enough volume to show up on some (keyword: some) shelves and menus, have to endure the problem of allocation.

Allocation, such an innocuous looking word, and yet it is one that will elicit groans from folks up and down the system that gets beer from breweries to your glass. The three tier system requires that almost all beer pass through the hands of three separate groups: producers, distributors, and retailers. Producers (breweries) sell their product to distributors. Distributors, in turn, sell that product to retailers (bars and restaurants, liquor stores, bottle shops, even baseball stadiums). The term allocation refers to which retail accounts are permitted to purchase product from distributors.

But what about allocation from the brewery and distributor side of things? On what basis are limited release beers allocated? Are frustrations shared? Are allocation issues destined to get worse? DCBeer reached out to representatives of breweries and distributors to hear their thoughts about what has become an integral part of, and common discussion within, craft beer.

The process of allocation necessarily causes some angst. Retailers who would like to sell a popular product may not be able to sell as much of it as they’d like, or any at all, given limited quantities. Allocation creates haves, have-somes, and have-nones.

As craft beer becomes more popular, the competition for these beers will continue to increase. Consider that five years ago, most major grocery store chains had a limited selection of craft beers. Fast forward to 2014, and we have beers like Dogfish Head Palo Santo Marron on Safeway aisle endcaps and Bell’s Hopslam for sale at Giant. This last example recently touched off a series of tweets from Nick Anderson, @The_Beermonger on Twitter, long-time beer buyer for Arrowine in Arlington, and ARLnow’s Your Beermonger columnist, expressing his frustrations with allocation.

“A Necessary Evil”

First and foremost, we have to recognize that there is no silver bullet to the allocation problem.

“The problem is there is no really good way to distribute really rare beer,” says DC Brau CEO Brandon Skall when reached over the phone. “We’ve tried everything, and there’s always still people who are upset. There’s never going to be a system where people don’t feel kind of slighted. Usually once a product goes to our distributor, they base it off of master brand sales, in their system that’s the fairest way to distribute a rare product.”

Ben Page, from the Virginia branch of distributor Kysela Père et Fils, LTD., echoes Skall’s sentimen via emailt: “One of the toughest things with allocations, especially when it’s the really, really heavily wanted stuff, is you know you’re going to make someone mad or upset. There’s always going to be an account who thinks they deserved more…It can be really frustrating that way. It’s the nature of the beast.”

“It’s a necessary evil, and it’s either go that route or just cut it loose for distributor reps to sell on their own accord, which means complete mayhem,” says Bernie Van Order via email. Bernie is a long-time craft beer representative in the area, currently with Lagunitas Brewing Company, who notes he’s speaking only for himself, and not the brewery he represents, on this topic.

What Are the Alternatives?

So how does beer actually get distributed? From both conversations over the years with folks in all corners of the industry and interviews conducted specifically for this article, the answer to that question is some combination of sales volume and relationships.

Kristi Kruger, Beer Ambassador for Evolution Brewing Company, notes via email that in their home state of Maryland, Evolution’s “statewide wholesaler allocates cases by area based on overall Evolution sales, and from there the area managers and sales reps dole them out. I will usually send the distributor a small ‘must receive’ list, which may include top accounts, long-supporting accounts, or people who pay attention to what’s coming out when and have simply asked for it.” For the DC and Virginia markets, however, allocation of limited releases is more hands-on. “I take full responsibility for the allocations on super limited cases. I don’t do it all by sales, as our top accounts aren’t solely known as ‘craft’ bars or stores, and probably wouldn’t sell many 750mL funky bottles. I do look at overall numbers and dole them out based on [both] the type of account and who would actually sell or want that type of product.” She points to the recent release of Nouveau Rouge as an example. That beer, instead of going solely to accounts moving a lot of Evolution volume, went to some of the busiest and largest stores, some particularly faithful independent retailers, and some of the “most consistently supportive” on-premise accounts. “To me that was the fairest way,” she concludes.

Skall has a similar story with his brewery’s super-popular (and hard to get) double IPA, On the Wings of Armageddon. Facing a shortage of sixtels (1/6 barrel kegs) at the brewery and with a batch of OTWOA in the brite tank and ready to go, DC Brau had a decision to make: wait until more kegs came in or can the beer and get it into the market as fresh as possible in any format possible. Brau opted for the latter, canning just 100 cases of OTWOA for the entire DC and northern Virginia markets. Demand, to no one’s surprise, was high, but with this limited a quantity people were bound to want more and not be able to get it.

Allocation based on sales volume isn’t the only system DC Brau has attempted. “We’ve tried opening it up to the entire market on a first-come first-serve basis with a limit of how many units can be purchased, and there’s unhappy people both ways.” Similarly, Skall knows if he sells OTWOA only at the brewery that this also “makes people upset.”

Oddly, sometimes high sales volume of a particular beer from a brewery doesn’t translate into getting an allocation. 3 Stars Brewing Company President Dave Coleman tells the story via email from his former life as the beer director at Dupont Circle’s The Big Hunt of “some breweries who didn’t build allocations simply on having a line year-round with one product, regardless of the amount of volume sold.”

Instead, these breweries wanted a diversity of their year-rounds represented. “They really expected and appreciated (read: ‘showed love’) to those accounts who would rotate through their entire library, not just carry Brand X year round. This would seem slightly counterintuitive, at least it did for me. I have X on year round and move a ton of units, yet I can’t get your specialty releases.”

Ben Page explains that Kysela has a system that works well for allocating limited releases, especially those for St. Louis-based brewery Perennial, which has a limited volume for the DC and Virginia markets.

“I’ll start pushing my sales staff a month and a half in advance when I know what the next Perennial release will be. I’ll say, ‘Tell me how much you think you can sell.’ They’ll put the orders in on back order, and then when it comes in, we can move these from back orders to filled orders. Before the beer even comes in, I know how much is ordered. It definitely helps…If it’s oversold I can always cut it back.” For example, if an account asks for three kegs of a rarity, they may only get two if the brewery isn’t able to send enough beer to cover all of the market’s demand.

Kysela’s craft beer portfolio is relatively small, which Page acknowledges is an asset. “We only have 7 breweries. It really gives us the hyper-focus on special releases like that. We can pump out a good volume and [cut back on oversold beer] real cleanly. I can’t imagine having to do the allocations for some of these distributors, where there’s 50-60-70 breweries in a portfolio. We get a little more hands-on, we can keep a good solid finger on the pulse of it all.”

For those other distributors and big brands, however, this option doesn’t always exist.

“The equation often becomes high volume account equals high allocations of [limited release] packages,” says an anonymous local salesperson representing a top 50 craft brand. “In [Nick Anderson’s] defense, is that partially due to laziness on the part of the wholesaler? You bet your sweet framboise it is. However, it’s also a very important part of the system that retailers who produce good volume are rewarded with more of the most profitable SKUs [individual product codes]. If not, what motivates them to give your products more attention, better shelf locations, cold storage, etc.?”

But what about independent shops that have no hope of competing with large grocery chains?

“Are there people out there that maybe struggle with volume, but still get the goods? Yes, and they do it with relationships,” the anonymous salesperson continues. “Going out of your way to regularly share a pint with your peers on other tiers of the system can make a significant difference in your allocation totals, but it’s not the best way. The best way is still to show you care about a brand beyond their trophy bottles.”

Cherry Picking: Not Just for Orchards Anymore

This theme of supporting breweries year-round is one that came up repeatedly. After all, limited releases are, well, limited, and don’t make up the bulk of breweries’ sales.

“Just cherry picking the best elements that come out of a brewery doesn’t help that brewery and doesn’t keep that brewery in motion,” says Brandon Skall. “We can’t make OTWOA all the time; it isn’t economically feasible. Even at $17.99 we have a much smaller margin per six pack on that beer than the others.”

“You also get some people who want to cherry pick for an allocated beer. You’ve got to keep supporting Troegs, Perennial, Laughing Dog, etc. to get those beers…I generally look for people where they keep that draft line year-round. I try to be as fair and supportive of the accounts that support the brand and Kysela,” adds Ben Page.

The anonymous salesperson puts it more bluntly: “In the eyes of a supplier, the absolute worst thing you can be is a cherry picker. That is the highest form of insult.  If you are upset about your access to small batch SKUs from a particular brewery, and you aren’t doing your absolute damndest to move their everyday packages, then I have absolutely no sympathy for you.”

Functions of Limited Release Beers…Beyond Consumption

Really getting behind a brand can be mutually beneficial for both a brewery and an account, says Dave Coleman. “I think you should reward behaviors that you wish to encounter. I appreciate all of our accounts, and the ones who continuously support and promote our efforts are the ones who receive preferential treatment and special allocations. Obviously, we wish we could make enough of our specialty releases to share with our entire market, but due to barrel size and production limitations, we are simply unable to do this.”

Retailers’ efforts on behalf of a brand can earn them rarities, even if they’re a smaller account, says Coleman. “I have had some ‘smaller’ accounts who crush the volume of larger bars because their entire staff is behind the brand and therefore recommends your product to each and every customer. These are the type of accounts that truly support a brand and make a huge impact on public perception, even through their small volume accounts.”

Wunderkind accounts demonstrating particular loyalty toward a brewery aside, the reality is that volume is still in the picture, even if the degree to which it matters varies. Big box stores and grocery stores undoubtedly have the capacity to move the most volume. But let’s be clear: the increasing interest in craft beer by big box stores didn’t create the problem of allocation.

“Allocation, even before chain stores got involved, was still no fun. Not only is it time consuming, it usually pisses off more people than it satisfies,” says Bernie Van Order. “To top it all off we get to field angry emails from consumers that got raked over the coals by some retailers to attain their one six pack of this oh-so-elusive elixir. Basically I think everyone involved would rather jump into a bathtub full of razor blades filled with alcohol.”

Despite the indigestion caused by allocation at all levels, increasing sales of year-round offerings that have higher profit margins by leveraging limited release beers plays an important role for brewery representatives and distributors. It’s this carrot of getting rarities that ensures the future existence of the allocation system in some form or another. After all, think about many of the beer events we see in the market. Seldom are a brewery’s limited release beers the only offering on the event menu; much more commonly these limited releases are accompanied by a number of other year-round brews that keep that brewery’s lights on.

Our anonymous salesperson admits, “The thing that the beer nerds in every tier would love to ignore, myself included, is that we have jobs because of profit, and our ability to drive profits higher. From both the supplier and the wholesaler level, the sharpest arrow in the quiver is limited release beer and how it is leveraged to generate better volume on year-round SKUs.”  

If that “beer is a business” reality is off-putting, it’s also tempered somewhat by a reminder that all of these accounts wanting craft beer is a good problem to have. Bernie Van Order reminds us, “For a long time, craft breweries struggled to find outlets for their juice, and now they are being courted. It’s a real success story in my eyes…It’s beer, people…relax, share with your friends and enjoy, it’s pretty simple.”

If only that were true in all cases, Bernie. Not one of the people interviewed for this article offered a solution to the Sturm und Drang of who is getting what and how much. For now, everyone involved with craft beer will have to deal with the imperfect system of allocation in some form or another for limited releases.

On an upshot, the old adage “if at first you don’t succeed, try, try again,” still holds. Says Evolution’s Kristi Kruger: “It never hurts to ask for something you’d like to get. At best some extra might become available, at worst you put yourself on the breweries/distributors’ radar for future releases.” They should all be so lucky to experience the former, but the law of supply and demand, unfortunately, says to expect otherwise.

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